Ore. diocese declares bankruptcy

Carol EisenbergTHE BALTIMORE SUN

Confronted by mounting costs from clergy sex abuse lawsuits, the Archdiocese of Portland, Ore., filed yesterday for Chapter 11 bankruptcy protection - an unprecedented step for a Roman Catholic diocese that effectively cedes control of church operations to a federal judge.

"No diocese has ever declared bankruptcy," said Charles Zech, an economist at Villanova University who studies church finance. "There's no precedent. They're taking a huge risk in turning over their operations to a civil judge."

The Portland Archdiocese's decision is unlikely to be an isolated one. Last week, Bishop Gerald Kicanas of Tucson, Ariz., said he is considering taking that step before an abuse trial begins in September. Boston officials recently avoided bankruptcy by selling property worth millions of dollars. Officials in Dallas, Santa Fe, N.M., and Louisville, Ky., have considered the option in the face of multimillion-dollar payouts to victims of sexual abuse. And many lawsuits have not yet come to court.

"I'm surprised it took this long for it to happen," said the Rev. Thomas Reese, who has written several books about church government. "The money is simply not there any more. The court awards in some of these cases have been so big that liquid assets are gone, the insurance money has run out and people in the pews do not want to fork over money to pay for settlements."

The filing offers several advantages for a beleaguered diocese: It freezes litigation and allows debts to be restructured, sometimes with reduced payments. But it also puts the financial administration of the diocese into the hands of a civil judge.

The judge could act as a mediator in any settlement talks. But the judge also would probably have to approve major archdiocesan expenditures as plaintiffs vie with each other for a share of its assets, said Fred Naffziger, a business law professor at Indiana University. It would be up to the judge to approve how much money creditors receive and which assets should be sold.

The judge has the authority to explore every nook and cranny of church coffers, and to open its books - prospects the Vatican has long sought to avoid.

In Portland, for instance, yesterday's filing halted the start of a civil trial involving allegations against the late Rev. Maurice Grammond, who had been accused of molesting more than 50 boys in the 1980s. The archdiocese has already paid more than $53 million to settle more than 130 claims by people who say they were abused by priests.

Archbishop John G. Vlazny said the archdiocese tried to settle with the plaintiffs but could not afford their offer.

"The pot of gold is pretty much empty right now," he said.

But David Slader, an attorney for the plaintiffs in the lawsuit, said the church was using the filing to avoid having the lawsuit's allegations become public.

"The bishop hasn't begun to touch his pot," Slader said. "He is lying."

The argument will now be settled by a bankruptcy judge who may not feel bound by church laws, which prohibit a bishop from selling parish assets to cover diocesan debts.

"No one knows whether a civil judge may view parish property to be a part of diocesan property that may be sold as part of any settlement," Zech said.

The Portland Archdiocese includes 125 parishes with more than three dozen schools - operations that have been insulated from the crises' fallout thus far.

Another issue may be whether a judge puts any limits on the assets that can be sold off to pay creditors.

"Do you say that all the assets of a diocese should be used to pay sexual abuse victims, to the point where the diocese literally has no assets left?" asked James Post, president of the national Voice of the Faithful, a lay advocacy group. "Or is the diocese entitled to save some of its assets so it can continue to perform its mission - for instance, helping the needy?

"That's the philosophical question that the bankruptcy judge is ultimately going to be struggling with."

Bud Bunce, spokesman for the Portland archdiocese, said that church operations will continue as usual.

"All the parishes will continue with their regular services," he said. "For the most part we anticipate the normal, everyday types of activities we do will continue."

But Bunce acknowledged that "there are a lot of unanswered questions."

Newsday is a Tribune Publishing newspaper. The Associated Press contributed to this article.